FBI Negotiating for Captain Held Hostage by Pirates; Schools Closing Due to Lack of Funds; Pentagon, Veterans Affairs to Streamline Personnel Records; Still No Reliable Early Warning System for Earthquakes; Number of First-Time Benefit Filers Declined Last Week; HUD Pledges Responsible Oversight of Stimulus Funds; Credit Card Companies Raise Interest Rates, Slash Credit Limits; Family Blames V.A. for Soldier's Suicide

Aired April 9, 2009 - 13:00 ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

KYRA PHILLIPS, CNN ANCHOR: We are pushing toward to one of the most dangerous places on earth. The pirate-filled waters off Somalia. An American ship captain still held hostage. The FBI steps in.

My school shut down, mom and dad. What if your child told you that? Well, thousands of parents might hear those words and we're going to tell you where and we're going to tell you why.

Hello, everyone. I'm Kyra Phillips, live at the CNN world headquarters in Atlanta. You're live in the CNN NEWSROOM.

We're about 36 hours into a pirate drama: high-seas hostage situation. And here's what we know right now. The hijacked U.S. cargo ship, the Maersk Alabama, is heading to port in Kenya about two days away now. So how is the crew making sure another attack doesn't happen? Put it this way. They have plenty of heat on board this time.

Pirates still have the Alabama's captain, Richard Phillips, in a life boat as their hostage. We understand Phillips is OK and that the life boat is out of gas.

The Navy has taken over the situation with negotiations help from the FBI. Chris Lawrence at the Pentagon for us.

Chris, where do we stand right now on those negotiations?

CHRIS LAWRENCE, CNN CORRESPONDENT: Well, Kyra, senior defense official confirms to CNN right now that the negotiators who are right here in the United States have been in contact by phone with those four pirates on the life boat.

Now, we're not sure if exactly negotiators are speaking directly with the pirates or if they're communicating instructions to the Navy, who then passes it on.

Again, they're in this life boat, which is now disabled, dead in the water. They're very isolated. They are hundreds of miles off the coast in the middle of the sea, and the Navy destroyer is right there. The Navy also has a surveillance plane flying that has been overhead, and they've got unmanned drones that are recording not only still photos but video, as well. And I'm told by a senior defense official that the Navy is getting very good images on that life boat.

The key thing to remember with that as I look at the clock right now, 1 p.m. here, which means it's about 8 p.m. there now. That means the sun is setting or about to set, and the Navy is equipped with night vision. So that might come into play over the next few hours as we head into the night in that area. The Navy will still be able to have eyes on that life boat.

PHILLIPS: All right. Chris Lawrence from the Pentagon, thank you so much.

And imagine what the commanding officer of the USS Bainbridge, Frank Castellano (ph), is probably thinking right now. He's trained to attack and destroy. He has all the firepower at his fingertips, but he's having to command a giant floating arsenal restraint.

Kirk Lippold probably knows what Commander Castellano (ph) is thinking. Lippold actually trained him. Lippold was also commander of the USS Cole when al Qaeda attacked the ship in 2000.

Kirk, let me just ask you. You know Frank very well. What type of commander is he?

KIRK LIPPOLD, FORMER COMMANDER OF USS COLE: He -- Frank is absolutely rock solid. He is a very, very mature and experienced commanding officer. He's had command previously of one of our Navy's patrol craft. So with him being on Bainbridge, I have absolute confidence that he's in the right place at the right time for a reason and that he'll do a great job there.

PHILLIPS: Frank (sic), let me ask you, when you do this training, I mean, these warships are meant to attack. They're meant to go after the enemy. It's not about sitting back and waiting to negotiate in a wartime scenario. So this has got to be really tough for him with regard to what he's been trained to do when it comes to an active war scenario.

So have you trained him in hijacking situations where he's got to actually really ride out his time and wait to respond?

LIPPOLD: I never trained him directly in that. But quite frankly, Navy officers are trained to deal with the full spectrum of warfare, and this is just a new aspect of it.

Just because you have a ship with tremendous combat capability doesn't mean that you won't also have to exercise that ability to have patience and restraint and discipline to make sure that nobody overreacts, that you don't do anything that's going to endanger the captain of the Maersk Alabama, and that we do what's right. And I have every confidence that he has trained his crew as well as I trained mine and that they're going to do a great job.

PHILLIPS: Naval special warfare, combatant crewmen being -- bring Navy SEALs in and out of high-threat situations all the time. In a scenario like this, it's very tricky, when you're talking about not a military ship that has pirates on board but you do have an American hostage.

At what point, Kirk, is the call made that naval special warfare could step in and SEALs might have to extract the hostage from this situation? Is it only if there were a gun to his head and he was about to be killed?

LIPPOLD: I think they just need to look at the circumstances. Obviously, they're going to work toward resolving this in a peaceful manner so that we don't have any unnecessary loss of life.

But as in any hostage situation, you have to make sure that the forces are in place, capable of doing it, and that they're able to do what they do.

One of the great things that the Navy, just by being there now and also the fact that we have a second ship en route, is we're going to bring some stability to the situation just by the fact that we have presence. While there may be combat power, the fact that there is going to be Frank's ship, USS Bainbridge, but as the USS Halliburton, which is en route, is going to calm the situation. The pirates are going to realize that they may have bit more than they can chew and that hopefully we can bring a peaceful resolution to this with the safe return of the captain aboard his ship.

PHILLIPS: Final question, because you were C.O. on the USS Cole when it was attacked by al Qaeda in 2002 (sic). You know firsthand the threat of small boats. Right now, I'm assuming hands on deck 24/7 looking at every small boat in the water to make sure that no additional pirates are heading toward that ship as it heads towards Somalia.

LIPPOLD: Absolutely. My guest is the last thing you're going to see happen are pirate boats come out to rescue their friends. They're going to be staying as far away from this situation as possible. They're going to be looking at them and saying, "Why did you guys decide to take on something that was flying an American flag," because if nothing else, when you take on an American ship, you are bringing the United States Navy to bear. And that's going to be one of the biggest challenges that they're going to face.

And like I said, I know that Frank and his crew are going to bring that ship and, hopefully, that captain back on board safely and that we can have a peaceful resolution to this piracy.

PHILLIPS: Kirk Lippold, it's always great to see you. Thanks for being with me today.

LIPPOLD: Thank you, Kyra.

PHILLIPS: From the moment that you land in Somalia, you know you're in a danger zone. At Mogadishu's airport, you have to actually give your name, your address, and the caliber of your weapon.

No functioning central government, no courts, no cops. But plenty of warlords, militias and pirates threatening to cut off one of the most commercially strategic waterways on the planet. Somali pirates have thrived amid decades of civil war and anarchy, operating with impunity in many spots: building houses, buying SUVs, throwing around the tens of millions of dollars in ransom that they've made from seizing dozens of ships, and young Somali men want to be them. Young Somali women want to marry them, flocking to their ports of call.

The U.S. has been keeping an eye on Somalia, but it's been keeping troops out. Why? Well, one big question. It boils down to three words: Black Hawk down, the horrific 1993 incident when militia men shot down two American Black Hawk choppers searching for warlord Mohammed Farah Adid. Eighteen U.S. soldiers were killed, some of their corpses dragged through the streets. Americans saw it on news reports, and they've never forgotten it.

CNN is closely watching this story minute by minute. When we hear or see any new developments, you will, too.

Just after his season debut with the Los Angeles Angels, rookie pitcher Nick Adenhart was killed early today in a hit-and-run car crash. The 22-year-old Adenhart was one of three people killed in that crash. Police say the driver of a minivan ran a red light and hit two cars. They say the minivan driver fled the scene and was arrested a short time later.

Adenhart was the Angels' number three starter. The team's general manager calls his death a tremendous loss.

Everybody knew Detroit's public school system was in trouble. Well, today parents and students found out 23 schools are on the chopping block, along with 600 teachers as the district deals with the projected $303 million deficit. And to come up with their proposed closure list, well, officials looked at enrollment, physical condition of the buildings, and academic achievement.

(BEGIN VIDEO CLIP)

ROBERT BOBB, EMERGENCY FINANCIAL MANAGER, DETROIT SCHOOLS: The bottom line is that we have too many buildings for too few students. And so we -- the reality is that buildings, schoolhouse buildings will have to be closed and consolidated. Following a series of input from the community, I will make my final decision on these rounds of closings by May 8.

(END VIDEO CLIP)

PHILLIPS: And we're going to talk to Robert Bobb about the school closing plan live in just about half an hour.

Detroit's economic woes well known, but the city certainly not alone in having to make some tough decisions. School districts across the country have been forced to make cuts. Hundreds of teachers in Tucson, Arizona, just got the bad news. We've got more now from David Marino of our affiliate, KVOA.

(BEGIN VIDEOTAPE) DAVID MARINO, KVOA REPORTER (voice-over): As teachers, parents and community members chanted their message loud and clear, TUSD school board members were left with a tough decision to make. In the end they unanimously approved layoffs.

ELIZABETH CELANIA-FAGEN, SUPERINTENDENT, TUCSON UNIFIED SCHOOL DISTRICT: We are reducing the number of employees that we feel is a very worst-case scenario for our district. We're doing it in hope that we will be able to recall some.

MARINO: Karen May (ph) is a single mother with two kids. At the end of the school year, she won't have a job.

UNIDENTIFIED FEMALE: I do empathize with them about their decision. But nonetheless, it's affecting a lot of people.

MARINO: Erica Torenberg (ph) is a teacher at Corbett (ph) Elementary. She also got a pink slip.

UNIDENTIFIED FEMALE: What do I do next? How am I even going to wake up in the morning and go in there and say, "Hey, guys, all right. It's time to do math. It's time to get ready for our opera. It's time to do this and that" when inside I'm dying?

MARINO: It wasn't an easy decision for TUSD to make. School board member Miguel Cuevas (ph) even choked back tears.

UNIDENTIFIED MALE: It's impacting my little brother's classroom. It's impacting the schools I went to, the administrators and employees. Like I said...

UNIDENTIFIED FEMALE: I know that, you know, you dedicated your life to education and chose this as a career path. And this is really one of the most unfortunate things I've had to be part of on this board.

(END VIDEOTAPE)

PHILLIPS: Back to our top story. We're just actually getting an interview fed into us by our affiliate, Bay News 9. Remember Ken Quinn, the second mate aboard the Maersk cargo ship, headed now toward Kenya? We had actually talked to him yesterday aboard that ship as they had taken down one of the pirates and were trying to negotiate the return for their captain.

But we caught up with Zoya Quinn, his wife. Here's part of that interview.

(BEGIN VIDEO CLIP)

ZOYA QUINN, WIFE OF MAERSK ALABAMA CREWMAN: This e-mail I got yesterday. It was in the morning before I heard from the company that the ship was hijacked. He e-mailed me that the ship was -- you know, the pirates were following the ship for one kilometer. And then he said that the pirates like to have to boats and were on both sides of the big ship to be able to climb up. He also said that they used a ladder to get up on the ship. And...

UNIDENTIFIED FEMALE: When you got that e-mail, were you scared? What did you...

QUINN: I wasn't scared, because he said, "They were following us. But we" -- I mean, nothing happened. They turned back.

UNIDENTIFIED MALE: Did he sound more scared or angry about that whole thing?

QUINN: He was angry, and before he left because he said that they weren't allowed to have any guns on the ship. So -- and I was watching a TV show which said that no one, you know, no -- any ship going through the canal not allowed to have -- to have guns.

(END VIDEO CLIP)

PHILLIPS: Zoya Quinn, mother of two there, got a chance to talk to her husband whom -- with whom we spoke to yesterday as he was in the middle of negotiations, trying to get his captain back on that ship after they had taken down one pirate, tried to make an exchange. And of course, the pirate did not stick to the plan of action.

Right now, though, that cargo ship on its way to Kenya with aid as the U.S. military has stepped in. We told you about the destroyer there on the scene. The FBI has stepped in, trying to negotiate now the life of that captain to get him out of the hands of those Somali pirates.

We're on that story. We'll continue to update you throughout the next couple of hours.

Well, President Obama calls it a sacred trust, protecting our veterans, but too often that trust is betrayed. Now he's trying to renew the nation's vows.

(COMMERCIAL BREAK)

PHILLIPS: Well, caught in the trenches overseas, caught in the red tape back home. Many of the nation's veterans getting inadequate, mistaken, sometimes nonexistent health care. Now President Obama wants to change that by announcing a new medical records system. Here's what he said just a short time ago.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: For too long we've fallen short of meeting that commitment. Too many wounded warriors go without the care that they need. Too many veterans don't receive the support that they've earned. Too many who once wore our nation's uniform now sleep in our nation's streets. It's time to change all that. It's time to give our veterans a 21st-century V.A.

(END VIDEO CLIP)

PHILLIPS: Kate Bolduan at the White House. Kate, tell us how the president's plan helps servicemen and women both during and after their military careers. Because that's where a lot of the criticism stands is afterwards.

KATE BOLDUAN, CNN CORRESPONDENT: Exactly. Hey, there, Kyra.

Well, basically, the president is talking about updating and revamping the medical records system that the Pentagon and the veterans -- Department of Veterans Affairs has. They're calling it the joint virtual health -- I keep -- it's so long I keep messing it up. Joint virtual lifetime electronic record.

Basically, the goal is to improve veterans' health care. How are they doing that? They want to streamline the transition of health- care records by making them electronic so they would seamlessly, as the president wants to say, seamlessly transition from the Pentagon to a veterans health center.

And the bottom line, they really want to cut through the red tape. You talked about it, Kyra. And the president talked about it, as well, saying these are problems that have plagued the veterans affairs department for years, even longer, saying that this makes it very difficult for veterans to get their benefits and their care and their services for their injuries in a timely fashion. And they really are trying to cut through the red tape with this one big step as the joint -- the joint plan and the joint program, you could call it, between the Pentagon and the Department of Veterans Affairs.

PHILLIPS: All right. Kate Bolduan, we'll be talking a lot about this throughout the afternoon. Really appreciate it. We're going to push forward on this story. We're actually going to meet a family who accuses the VA of abandoning their soldier son with tragic results.

(BEGIN VIDEO CLIP)

KEVIN LUCEY, FATHER OF JEFFREY LUCEY: The hose was double-looped around his neck. But you know, this is not going to make any sense to you. For the first time in months he really looked at peace.

(END VIDEO CLIP)

PHILLIPS: A soldier's family in a battle at home. You're going to hear their story this hour. Also an incredibly revealing audiotape of a psychologist in the military being told to misdiagnose PTSD. We're going to take that live and talk about that, as well.

(COMMERCIAL BREAK)

PHILLIPS: Italy's deadly earthquake struck in the middle of the night this week when people were most vulnerable. Scientists have been working on a quake warning system for decades. We're going to take a look at their progress.

(COMMERCIAL BREAK)

PHILLIPS: Shoveling sand, they're still doing it in Fargo, North Dakota, as the city awaits the second crest of the Red River in just under two weeks. Recent rains and melting show have swelled the river again. Twelve days ago more than 4 million sandbags helped hold back the Red River as it reached a record crest of 41 feet. This time around, forecasters are not expecting a record crest.

Well, along with the flooding threat, another round of severe storms in the middle of the country. Chad Myers watching it all for us.

Hey, Chad.

CHAD MYERS, AMS METEOROLOGIST: Hey, Kyra.

Watching a couple of things. Watching the potential for severe weather around parts of Kansas and Oklahoma and Texas, down into Arkansas and also the one more thing. We showed you this map a lot of times back in Fargo time when the flood crest was way up here.

Well, the flood's still going down, but then it looks like around Sunday it starts to bounce back up rather quickly. And there still is a chance if this warms up too fast that that line keeps going back up toward a record flood stage again.

But the immediate threat today is the threat of severe weather and, really, for Tulsa, Grand Lake of the Cherokees, Joplin, back down to Fort Smith.

Here's a live shot from Tulsa. If you look at this shot, you're thinking this isn't a severe weather day. No, it's not yet, because the sun is not out. But you get back toward Stillwater it is fair, and temperatures are going up: 75 in Stillwater, only 66 for you in Tulsa.

And if you break out and get some sunshine, the severe threat goes up significantly. And then the sunshine stays out for Grand Lake, back out toward -- even into Branson, Missouri, could be in that thick, really thick heat of the day severe weather problems, as we saw last week. Another big day maybe tonight.

A couple tornadoes. Not a big outbreak. We'll be here -- Kyra.

PHILLIPS: All right. Chad, appreciate it.

Well, Italy is preparing to honor the victims of the L'Aquila earthquake. And here's what we know. A special mass funeral service will be held tomorrow, Good Friday. The death toll now at least 278. Four of those bodies still haven't been identified.

Meantime, Italian Prime Minister Silvio Berlusconi is saying today that reconstruction of the historic city will run into the billions of dollars.

Aftershocks continue to rattle L'Aquila's survivors, who have no way of knowing if the next one will be another big one.

An Italian scientist claims to have predicted Monday's quake weeks before it happened. Authorities dismissed his claim, but it's become quite a controversy.

Dan Simon takes a look at decade-long efforts to develop an early warning system.

(BEGIN VIDEOTAPE)

DAN SIMON, CNN CORRESPONDENT (voice-over): Any time there's a major earthquake like the one this week in Italy, there is renewed speculation about whether these kind of catastrophes can be predicted.

The U.S. Geological Survey says there's a 99 percent chance a significant earthquake will again strike California within the next 30 years: 6.7 magnitude or greater. The quake in Italy was a 6.3.

Thirty years. Not much help in helping communities prepare for a disaster. Seismologist Kate Hutton says the best hope may be a warning system that would alert communities the moment an earthquake has struck.

KATE HUTTON, CALIFORNIA INSTITUTE OF TECHNOLOGY: And we'd have plenty of time to, say, stop elevators or slow down high-speed trains or, you know, that kind of thing that could save lives.

SIMON: Still, researchers have looked at several ideas over the years to predict quakes, including the activity of cockroaches along fault lines, the movement of air mass and ground warping. But most have been discredited.

Some experts say satellite imagery could be one area of promise. Although earthquakes seem to strike randomly, the energy released from a quake builds up for months or years. The theory behind advanced imaging would be to sense that buildup and provide data on the likelihood of a quake.

The academic community has also been trying to come up with better building materials to withstand earthquakes, including stronger shock absorbers that could be retrofitted on aging buildings or used in new construction.

Bottom line: while technology is continually evolving, a powerful earthquake is bound to cause significant damage, no matter where it happens.

(on camera): As for how California would fare during a major earthquake, there are significant concerns about our infrastructure, particularly the water system. State officials recently put out a report that said if there is a major quake in the San Francisco Bay Area -- that's a 7.0 or more -- it could ripe wipe out the water system for a majority of the population for more than a year.

Dan Simon, CNN, San Francisco.

(END VIDEOTAPE)

PHILLIPS: The perils of plastic. If you haven't already, you may soon see you why your credit-card interest rates shoot up and your credit limit drop. We're going to find out what you can do to protect yourself.

(COMMERCIAL BREAK)

PHILLIPS: Well, the hijacked U.S. cargo ship, Maersk Alabama, should be in port within a couple of days. The ship and its crew are headed to Kenya with plenty of protection this time.

The ship's captain, still on a life boat, held hostage by four pirates. About nine days of rations left, but no tank in the -- or no gas in the tank.

The Navy is handling negotiations to free the captain with the assist from the FBI. Navy surveillance planes, unmanned drones all keeping an eye on that small boat.

And this note: NATO says that pirates tried but failed to seize another cargo ship today off the Somali coast. A Greek ship this time. That's at least seven attacks in a week.

A little more about the USS Bainbridge now. The warship is relatively new, commissioned -- new. It was commissioned in 2005. Its home port is Norfolk, Virginia. The ship's crew: about 370. The guided missile destroyer carries a pair of Seahawk helicopters.

And the United States and other nations deployed war ships off Somalia late last year to guard against piracy.

So what happened out there off the Somali coast is something sailors prepare for just in case.

CNN's Jason Carroll takes us through pirate aversion training.

(BEGIN VIDEOTAPE)

JASON CARROLL, CNN NATIONAL CORRESPONDENT (voice-over): Cadets at the Massachusetts Maritime Academy are taking aim at pirates thousands of miles away. Part of a pilot program, the only one of its kind at a U.S. maritime academy, designed to train them how to use guns against pirates when all else fails.

CADET MATTHEW DUGGAN, REGIMENTAL COMMANDER: Training and learning the safety of the weapons is certainly important.

CAPT. BRAD LIMA, ACADEMIC DEAN, MASS. MARITIME ACADEMY: Should a situation rise that they need to know more about firearms, then they've had that training here.

UNIDENTIFIED MALE: Load five rounds.

CARROLL: Brad Lima taught the course Wednesday because Joe Murphy, the man who was supposed to teach, learned his son, Shane, a 2001 graduate of the academy, had been taken hostage by pirates.

CAPT. JOSEPH MURPHY, FATHER OF MAERSK CREW MEMBER: This is a classic example of Murphy's Law, where I teach the course, my son goes to sea and he gets captured. CARROLL: Shane Murphy is the chief officer onboard the Maersk Alabama, the second in command. He managed to call his wife, saying he was alive and that the crew had managed to take down one of the pirates.

SERENA MURPHY, HUSBAND ON HIJACKED SHIP: Not he personally, but they had taken down one of the pirates. I said have you -- have they tortured you or hurt you? He said they hadn't had any water at all to drink since they've been captured, and nothing to eat.

J. MURPHY: It was by sheer force. They have no weapons, so it must have been obviously just overpower them.

CARROLL: Murphy says his son was well trained at the academy. His vessel outmaneuvered the pirates for several hours before getting caught. Most maritime academies teach cadets how to escape from pirates so they don't have to engage them. Water hoses and sound devices are also used to fend them off, but as pirates become more aggressive and better armed, officials at the Massachusetts Maritime Academy want the cadets graduating knowing how to arm and defend themselves.

ADMIRAL RICHARD GURNON, PRES., MASS. MARITIME ACADEMY: Although many merchant ships are unarmed, we felt that it was a safety factor to have our graduates familiar with small arms.

CARROLL: One maritime expert says teaching cadets to arm themselves is not the solution.

MIKE LEE, ASST. V.P., MCROBERTS MARITIME SECURITIES: I believe in man's inherent right to defend himself, but I think in this case it's not the right course of action. I believe it will further escalate the violence.

CARROLL: But Joe Murphy could not disagree more. He still says it's an important training tool considering last year 165 vessels were attacked off the coast of Somalia, and 43 were seized by pirates.

J. MURPHY: This is a wake-up call for America. These people are organized -- members of organized crime.

(END VIDEOTAPE)

PHILLIPS: Well, CNN is closely watching the story closely minute by minute. When we hear or see any new developments, you will, too.

A slight ray of hope in the awful unemployment reports that we've been hearing for months now -- 664,000 Americans filed initial claims for benefits last week. That's 20,000 fewer than the week before. But the total number receiving benefits hit a record for the eleventh straight week, more than 5.8 million. That's a jump of almost 100,000 from the week before.

A lot of unemployed Americans have turned to job fairs in these tough times, but you can't hold a job fair without employers showing up. And that happened in Colorado, where people looking for work showed up, but employers didn't. And with no employers there, the job fair was called off.

(BEGIN VIDEO CLIP)

CAROLYN POPOVICH, COLORADO WORKFORCE CENTER: Those employers that were needing people don't even have to really go out and look for them. They're coming to them. So, they're not needing to come in, or you've got that also the other aspect of employers are scared.

(END VIDEO CLIP)

PHILLIPS: The center where the job fair had been scheduled will now help out-of-work people polish their job skills and improve their resumes.

Time to refinance your home, the message today from President Obama, who's urging Americans to take advantage of record low rates or fixed mortgages. But he also has a warning for you: Watch out for scam artists.

(BEGIN VIDEO CLIP)

OBAMA: As people have become aware that the government is helping to promote refinancing, we're starting to see some scam artists out there who are contacting people, saying you can refinance your home, the government's got a program, we're ready to help. Oh, but by the way, first you got to pay some money.

I just want everybody watching today to know that if somebody is asking you for money upfront before they help you with your refinancing, it's probably a scam.

(END VIDEO CLIP)

PHILLIPS: Well, a chunk of the Obama administration's stimulus money is going to housing agencies. Those same agencies have had problems managing money in the past. CNN's Mary Snow investigates.

MARY SNOW, CNN CORRESPONDENT (voice-over): Gutted and slated to be renovated with federal stimulus money. The head of Newark, New Jersey's housing authority hopes to turn about 1,000 public housing units into livable ones like this. But the good intentions come with heavy scrutiny. The agency is on a troubled list, having mishandled federal money in the past. Keith Kinard was brought in to clean things up.

KINARD: Residents of that community should not be penalized because of prior indiscretions and irresponsible management.

SNOW: Newark is just one of 61 cited in a "USA Today" survey slated to receive $300 million in stimulus money even though the agencies have been faulted in recent audits. And some watchdog groups are raising red flags about potential waste.

LESLIE PAIGE, CITIZENS AGAINST GOVT. WASTE: The spending cart came before the oversight horse. And so, we've got a real problem there with, you know, shoving hundreds of millions of dollars -- hundreds of billions of dollars through programs that are already compromised and mismanaged.

SNOW: Not true, says Housing and Urban Development Secretary Shaun Donovan. He tells CNN special processes have been put in place to monitor the money.

SHAUN DONOVAN, HUD SECRETARY: Not a dollar of this money has gone out to a single troubled housing authority, and not a dollar will go out until we've gotten their plans in, we've reviewed their plans and we are absolutely confident this money will be spent well.

SNOW: Newark's housing authority has already hired some workers to renovate vacant apartments. But Keith Kinard says it will only get reimbursed with stimulus money after going through a review process on the work that's been done.

Mary Snow, CNN, New York.

(END VIDEOTAPE)

PHILLIPS: Americans are cutting back on their use of credit cards by a record amount and maybe for good reason. There are some big changes that are happening to that plastic in your wallet. Personal finance editor Gerri Willis joining me now from New York. Gerri, what's going on?

GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Well, hey there, Kyra. You may have noticed your credit limit slashed or your interest rate up even for card holders with a decent credit score, and it's happening more frequently. That according to a recent study from Synergistics Research.

What's happening here is that issuers are reducing the risk in their credit card portfolios. Just like any other business squeezed by the economy, they're seeing reduced profits, rising unemployment, plus the specter of change as new credit card regulations take effect in July of 2010 -- Kyra.

PHILLIPS: Well, so, what can people do to protect themselves against the practices?

WILLIS: You've got to read your mail. You know, you get all that mail from your credit card issuer. You really have to scrutinize it, get updated terms and conditions. This may look like junk mail, but here's what you're looking for, the words and phrases to look out for. As of X date, X is changing. "Modifying" is another word to watch. Dates going forward altering. You get the picture. And don't close old accounts. It may seem counterintuitive, but closing old accounts can hurt your credit score. Look into hardship programs to qualify. You generally have to be delinquent, and you usually have to have a sizable debt like a minimum of 2,500 bucks or up. Call your issuer. Ask about hardship programs. They're not always advertised. You may get your rate lowered. You can get a payment plan. These are new.

Change your mindset. Don't use credit cards every month to cover a portion of the family budget. And I know a lot of people out there do this. It's not free cash. Carry a balance that you keep adding to every month, you're simply digging yourself in deeper. On $10,000 in credit card debt at an interest rate of just 15 percent, you can make payments of 250 bucks a month. It will take you five years to pay the debt off. And $4,000 of that will be used just in interest alone -- Kyra.

PHILLIPS: Wow. All right, Gerri. Appreciate it.

WILLIS: My pleasure.

PHILLIPS: Well, thousands of kids in Detroit don't know where they'll be going to school next year. Twenty-three city schools proposed for closure, and hundreds of teachers being laid off. We're going to talk to the district's state overseer live.

(COMMERCIAL BREAK)

PHILLIPS: Well, now that the list's out, some parents are vowing to fight the proposed closure of 23 Detroit public schools. Shrinking enrollment and big budget problems are behind that move. The district's emergency financial manager, Robert Bobb, sent a letter to parents today. In it, here's part of it: "This is not about 'winners' and 'losers.' It's about strong academic environments, safety and security and parent and community involvement."

Robert Bobb joins me now by phone to talk about all of this. I'm assuming, Robert, that this was an extremely tough decisions when you looked at all the various schools and what had to be cut.

ROBERT BOBB, EMERGENCY FIN. MGR., DETROIT PUBLIC SCHOOLS (via telephone): Yes, it is. It was a very difficult decision to make, but it is a decision which has to be made. We were a school system with well over 140,000 students in 1999, and our school enrollment is now at 95,000 students. And so, these decisions, while difficult, are decisions that have to be made.

PHILLIPS: And Robert, when you look at the list of schools that are said to be shut down, and if you look at the adequickly -- or the adequately yearly progress rates, the AYP, there's a number of schools on there that did well, like Westside Multicultural, Guyton, Joyce. So, why are those schools being closed down even when it looks like the test scores are pretty good?

BOBB: Well, the test scores are good in those schools, but they're also -- we're sending them to receiving schools, where the test scores are also good. The one thing we don't want to do is to close a school with high test -- with very good test scores and then transfer those students to a school that's a low-performing school.

PHILLIPS: Will you have problems then with overcrowding?

BOBB: You know, I wish it's a problem that we had, quite frankly, because even with some of the receiving schools we still have literally hundreds of additional seats. Our school system still remains a school system where facilities that were built for our system when we had well over 100,000 students.

PHILLIPS: And you've got, I think it's 600 teachers that you're letting go as well. Robert, how did you decide who's an effective teacher and who is not?

BOBB: Well, that's the problem with teacher layoffs because generally the layoff occurs by seniority. We're in the midst of renegotiating our teacher contract, which we'll have done before the beginning of the next school year. But it's necessary to send these notices out now for 600 -- referencing 600 teachers that will be receiving notices.

As a matter of fact, it's going to be about 609 teachers.

PHILLIPS: Wow.

BOBB: But the key to these improvements is that we're also requesting that the governor approve $200 million in state stimulus funds. We have projects that are ready to go, particularly to fix up those schools that will be receiving new schools (ph). We also have -- requesting $25 million for security services in our schools.

PHILLIPS: Robert Bobb, appreciate your time. We'll follow up and see exactly where those students go, where that money goes, and if indeed it makes a difference. Appreciate it.

BOBB: Thank you.

PHILLIPS: Another day, another Ponzi scheme. What makes this one so different? Well, the guy accused was a church bigwig.

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PHILLIPS: Well, an ex-Mormon bishop has allegedly confessed to running a 15-year, $20 million Ponzi scheme. The feds are freezing his bank accounts now and have started seizing some of his big-money assets. Among them, homes in Colorado and Idaho, artwork by Rembrandt and Picasso and a bunch of rare classic cars. No arrest has been made yet, but the SEC filed a lawsuit this week. Some of the victims of the Ponzi scheme, reportedly fellow members of the Church of Latter- Day Saints.

And get this, a mob assassin getting $150,000, not for a successful hit, mind you. He's getting it from the federal government. It's a payoff because an FBI agent shot him by accident. That's 140 grand more than he got paid for whacking "Big Al" Bruno back in 2003. The hit man is cooperating with prosecutors and might be coming to a neighborhood near you in the witness protection program.

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PHILLIPS: Well, we're just getting started in the NEWSROOM. Straight ahead, pushing forward on piracy. It's not about parrots and peglegs anymore. It's about business, big business. And that translates into big losses for the rest of us. Plus, baseball fans across the U.S. holding moments of silence today. They're mourning the loss of an up and coming Angel.

A shocking admission from an Army psychologist. You won't believe what he's caught saying on tape. We have the sound, and you're going to hear it.

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PHILLIPS: Well, America's sacred trust to its veterans all too often betrayed when it comes to health care. And now, President Obama wants to change that. He announced a plan today to update military medical records for troops both during and after their careers. The president says that that will help cut through the red tape that veterans all too often face in trying to get benefits. Mr. Obama says the new system will allow vets to get those benefits quicker.

Troops mistreated and also misdiagnosed. We've got our hands on an audiotape which first surfaced on salon.com. It purportedly features the voice of an Army psychologist and was secretly recorded by a soldier at Fort Carson, Colorado.

On it, Douglas McNinch (ph) reportedly says he's been pressured not to diagnose post-traumatic stress disorder in soldiers and to label them instead with anxiety disorders. That could result in the wrong treatment or lower disability payments. Just listen to the sound.

(BEGIN AUDIO CLIP)

DAVID MCNINCH, PSYCHOLOGIST: I and the other commissions who do boards up here are under a lot of pressure to not diagnose PTSD. It's not fair. I think it's a horrible way to treat soldiers. But unfortunately, you know, now the V.A.'s jumping on board and saying, well, these people don't really have PTSD and stuff like that.

(END AUDIO CLIP)

PHILLIPS: And this note. We've reached out to Veterans Affairs Secretary Eric Shinseki four times in the past two weeks to discuss vets health issues. He's repeatedly declined. Also, I personally reached out to the Department of Defense for reaction to the tape you just heard.

Here's the reaction we just got: "The Army does not pressure health care providers in their determination of a diagnosis, nor does it condone such activity. A 2008 Army investigation, in fact, concluded that commanders were not influencing health care providers. The investigation did, however, note that the requirements for PTSD diagnosis were too cumbersome, making it difficult for soldiers to complete the physical evaluation board process."

Well, you might have been shocked by the tape that you just heard. But one Massachusetts family probably wouldn't be. They blame the V.A. for the suicide of their soldier son. Here's CNN's Deborah Feyerick.

(BEGIN VIDEOTAPE)

DEBORAH FEYERICK, CNN CORRESPONDENT (voice-over): Jeff Lucey's room is much the way he left it. His uniform pressed. His rucksack packed. A picture of his Marine platoon on the wall.

UNIDENTIFIED FEMALE: Jeffrey didn't get the chance. He didn't get the chance.

FEYERICK: He left a note: "Dad, please don't look, just call the police. I love you -- Jeff."

KEVIN LUCEY, FATHER OF JEFFREY LUCEY: The hose was double-looped around his neck. But, you know, this is not going to make any sense to you. For the first time in months, he really looked at peace.

FEYERICK: Lance Corporal Jeff Lucey, who had never been away from home before, was haunted by what he saw and did in Iraq.

DEBBIE LUCEY, SISTER OF JEFFREY LUCEY: Standing right here, actually where you are, and he looked at me, and as he took two dogtags off of his neck and tossed them at me and said, don't you understand, your brother's a murder.

FEYERICK: He'd been home less than a year. He was depressed and hallucinating and drinking heavily to numb the pain. Finally, his family convinced him to get help. They had him involuntary committed at a V.A. hospital 40 minutes away.

K. LUCEY: The day that I brought Jeff over to the V.A., I really felt like I was putting him in the arm of the angels. I really did. Because they're the experts. They've been dealing with PTSD and military PTSD for decades.

FEYERICK: But Jeff was not diagnosed with post-traumatic stress disorder. He wasn't diagnosed at all.

(on camera): Jeffrey Lucey lasted all of four days. His family says he was sent home, told by the medical staff that they couldn't do an assessment until he was alcohol-free. Well, Jeffrey Lucey began to free-fall.

(voice-over): His sister, Debbie, tried to bring him back.

D. LUCEY: I said, you know, if you don't help him, he's not going to be here this time next month, and that was on June 5th. And on June 22nd, he died. FEYERICK: Jeff killed himself in 2004, but a wrongful death lawsuit filed recently by the family says Jeff was turned away without ever being evaluated by a psychiatrist. So, what went wrong? Harvard's Linda Bilmes, who's done extensive research on the cost of veterans care, says the veterans health administration is overwhelmed.

LINDA BILMES, KENNEDY SCHOOL OF GOVERNMENT: There's been no planning for how much money the V.A. needs, how much capacity they need, how many mental health care practitioners they need. It's as if we expected to send out all these young men and women to war and not to take care of them when they came home.

FEYERICK: The Veterans Affairs Office could not comment on the Luceys' case because of the lawsuit, but they say the V.A. has made changes.

ANTOINETTE ZEISS, VETERANS ADMINISTRATION: We've hired in the last two years over 3,400 new mental-health professionals, and that includes things like placing a suicide prevention coordinator in every single facility in the country.

FEYERICK: Small consolation for the Luceys.

K. LUCEY: If they did this to our son, how many others are they doing it to and have they done it to?

(END VIDEOTAPE)

PHILLIPS: Debra Feyerick joining us now live from New York. Deborah, where does the lawsuit stand right now?

FEYERICK: Well, Kyra, just a few months ago, in January, the Lucey family accepted an offer from the Justice Department to settle the lawsuit for $350,000. In a letter to the family, an official called Jeffrey's death a tragedy for the V.A. and said changes were being made to improve the system, but the V.A. did not take responsibility for Jeffrey's death -- Kyra.

PHILLIPS: Deborah Feyerick, I appreciate it. And we're pushing forward with this issue. Coming up, you're going to hear from Kevin Lucey, the father of Jeffrey Lucey. Also, we're going to talk to two of the nation's most passionate veterans advocates. All next hour right here in the CNN NEWSROOM.

Well, it's 9:00 at night out there off the Somali coast. Darkness, tension and restraint as the U.S. Navy tries to peacefully end a hostage standoff. The hijacked U.S. cargo ship Maersk Alabama and its crew on the way to Kenya now, and they've got some big guns sailing along with them. Their captain's staying behind. He's still in the lifeboat as a pirate hostage, and we understand he's OK. The Navy is handling negotiations to free the captain within a assist from the FBI.

Our Pentagon correspondent, Chris Lawrence, here with more of those details. How are the negotiations going, Chris? LAWRENCE: Well, Kyra, we know from senior defense officials that negotiators here in the United States are in contact by phone with those pirates on the lifeboat. Now, we don't know if they're talking with them directly or communicating instructions through the Navy that's out there at sea.

But we do know the government, the U.S. government, is in contact with the pirates. We also know that the Alabama has left the area. It's also being escorted by an armed military escort on board. So, we know that the lifeboat is isolated at this point. It's several hundred miles off the coast of Somalia, out there in the ocean. The Navy destroyer is out there as well.

It's nighttime now. The sun's gone down. But the Navy still has its surveillance planes, its unmanned drone, and it's able to use night vision to keep eyeballs on that lifeboat to see what is happening.

PHILLIPS: All right, Chris. We'll keep tracking it. Appreciate it.

And from the moment you land in Somalia, you know you're in a danger zone. At Mogadishu's airport, you have to give your name, your address and your caliber of weapon. No functioning central government, no courts, no cops. But plenty of warlords, militias and pirates threatening to cut off one of the most commercially strategic waterways on the planet.

Somali pirates have thrived amid decades of civil war and anarchy, operating with impunity in many spots, building houses, buying SUVs, throwing around the tens of millions of dollars in ransom that they've made from seizing dozens of ships. Young Somali men want to be them. Young Somali women want to marry them, flocking their ports of call every day.

CNN is closely watching this story minute by minute. When we hear or see any new developments, you will, too.